Fintech licensing glossary

Terms

AML/CFT

Anti-money laundering and countering the financing of terrorism represent the legal frameworks, governance standards and technical controls established to prevent financial systems from facilitating criminal transactions. Obliged entities must conduct customer risk assessments, verify client identities, monitor transactions dynamically and report suspicious financial operations to designated statutory authorities.

Asset-referenced token (ART)

A crypto-asset designed to maintain a stable value by referencing a basket of fiat currencies, commodities or other crypto-assets. Issuers must obtain dedicated regulatory authorisation, publish an approved white paper, maintain segregated reserve assets, establish clear redemption rights and satisfy ongoing liquidity and governance requirements. More

Authorisation vs registration

Authorisation is an exhaustive licensing process requiring thorough supervisory assessment of an applicant’s business model, governance, capitalisation, compliance controls and executive fitness before commencing activities. Registration is a simplified administrative procedure confirming corporate details and baseline anti-money-laundering compliance, typically conferring narrower permissions and no European passporting rights.

CENTROlink

The retail payment system operated by the Bank of Lithuania granting authorised payment and electronic money institutions direct connectivity to the Single Euro Payments Area. The system allows non-bank fintech firms to execute instant payments and credit transfers across Europe without relying on commercial clearing banks. More

Change of control

A corporate transaction in which a person or entity acquires, increases or relinquishes a qualifying holding or decisive influence over an authorised institution. Supervisory authorities assess the proposed acquirer against strict reputation, financial soundness and anti-money-laundering criteria before granting regulatory approval or issuing formal objections to the acquisition.

Compliance officer

The executive tasked with ensuring that an authorised financial institution adheres continuously to applicable statutory legislation, supervisory guidance and internal risk policies. Operating independently from revenue-generating business divisions, the compliance officer advises senior management on regulatory obligations, manages supervisory examinations and remediates operational deficiencies across regulated activities.

Crypto custody

The regulated activity of safekeeping or controlling crypto-assets, cryptographic private keys, or means of access to digital assets on behalf of clients. Custodians must establish resilient key management infrastructure, segregated wallet architectures, clear customer liability policies and tested business continuity arrangements to prevent unauthorised asset loss. More

Crypto-Asset Service Provider (CASP)

A legal entity authorised under European Union digital asset legislation to provide regulated crypto services to third parties. Permitted activities include digital asset custody, exchange operations, order execution, transfer services, portfolio management and operating crypto trading platforms, subject to comprehensive capital adequacy, governance and consumer protection rules. More

Crypto-asset white paper

A mandatory legal disclosure document published by an issuer or service provider offering crypto-assets to the public or seeking trading admission on an exchange. It describes the issuer, technical blockchain architecture, commercial rights, financial risks and environmental impacts, carrying statutory civil liability for misleading or omitted material facts. More

Digital Operational Resilience Act (DORA)

A European Union regulation establishing comprehensive operational resilience and cybersecurity standards for financial entities and their critical technological partners. It mandates rigorous information and communication technology risk management, major cyber incident reporting, periodic resilience testing and direct regulatory oversight of critical third-party cloud and technology vendors.

Dormant licence

A valid financial authorisation held by an institution that is not actively delivering permitted services or has ceased commercial operations for an extended duration. Supervisory authorities monitor inactivity closely and retain statutory powers to suspend, revoke or cancel licences that remain unused beyond designated regulatory deadlines.

E-money distributor

An external intermediary appointed by an authorised electronic money institution to distribute or redeem electronic money on its behalf, such as through retail chains or digital partner networks. Distributors do not execute payment services independently, but the supervising institution must register them formally and oversee their distribution activities. More

E-money token (EMT)

A crypto-asset designed to maintain a stable value by referencing the value of a single official fiat currency. Under European Union digital asset legislation, e-money tokens are categorised as electronic money surrogates, meaning only authorised credit institutions and electronic money institutions may issue them to public users. More

Electronic Money Institution (EMI)

A financial institution authorised to issue electronic money, store digital value on payment devices or accounts, and deliver statutory payment services. Governed by electronic money directives, an institution must safeguard customer balances, satisfy an initial capital requirement of EUR 350,000 and maintain adequate own funds on an ongoing basis. More

European Banking Authority (EBA)

The European Union agency responsible for maintaining financial integrity, banking stability and consumer protection across the European banking, payments and electronic money sectors. The agency drafts regulatory technical standards, assesses institutional capital adequacy, coordinates supervisory colleges, and directly oversees significant asset-referenced and e-money token issuers across member states. More

European Securities and Markets Authority (ESMA)

The independent European Union supervisory authority tasked with enhancing investor protection and promoting stable financial markets across Europe. The authority develops technical standards, supervises credit rating agencies and trade repositories directly, fosters supervisory convergence among national regulators, and maintains public registers of authorised investment firms and crypto service providers. More

FATF grey list

The public register published by the Financial Action Task Force identifying jurisdictions with strategic deficiencies in their anti-money-laundering and counter-terrorist financing frameworks. Countries under increased monitoring must remediate identified weaknesses, while financial firms dealing with grey-listed territories must apply enhanced customer due diligence and heightened transaction scrutiny.

Fit and proper

The supervisory standard applied to directors, key executives and qualifying shareholders to ensure they possess professional competence, integrity, honesty and financial soundness. Financial regulators evaluate executive track records, regulatory history, potential conflicts of interest and criminal records before approving appointments, ensuring authorised institutions maintain sound and prudent management.

Grandfathering

A statutory provision allowing market participants already operating under preexisting national legislation to continue their activities when a new regulatory framework enters into force. Grandfathering provides legal certainty and operational continuity, giving existing businesses a designated grace period to transition governance and obtain full authorisation under the new regime. More

Home state vs host state

In cross-border European supervision, the home state is the member state where an institution maintains its registered office and primary licence. The host state is any other member state where the firm delivers services or operates branches under passporting, subject to local conduct rules and coordinated inter-authority supervision.

IBAN issuance

The capability of an authorised payment or electronic money institution to generate unique International Bank Account Numbers for customer accounts. This capability allows users to send and receive domestic and cross-border payments seamlessly through national clearing networks and international payment schemes without relying on an intermediary partner bank. More

ICT third-party provider

An external vendor providing information and communication technology services, such as cloud hosting, software systems, data analytics or payment routing, to authorised financial institutions. Critical technology suppliers are subject to direct European regulatory scrutiny, mandatory incident reporting, operational testing and enforceable contractual access rules for supervisors.

Initial capital

The minimum amount of paid-up equity and unencumbered reserves an applicant must possess to secure financial authorisation. For an electronic money institution in the European Union, the statutory baseline is EUR 350,000, which must be fully paid and proven before the competent authority will issue a licence. More

Innovation hub

A dedicated engagement facility run by a financial regulator to provide fintech businesses with informal guidance, regulatory clarity and non-binding advice regarding licensing pathways and supervisory expectations. Unlike regulatory sandboxes, innovation hubs do not involve controlled consumer testing, focusing instead on dialogue and policy navigation. More

Know Your Customer (KYC)

The mandatory due diligence procedure through which an authorised firm identifies and verifies prospective and existing clients before establishing a business relationship. The process involves validating official identity documentation, confirming residential addresses, establishing corporate beneficial ownership structures and screening counterparties against international financial sanctions and politically exposed person lists.

Legal Entity Identifier (LEI)

A unique alphanumeric reference code based on international standards that distinctly identifies legal entities participating in global financial markets. Mandated across supervisory reporting and securities transactions, the identifier enables competent authorities to track market participants, monitor systemic financial risks and clarify complex corporate ownership structures across borders.

Local substance

The supervisory requirement that an authorised institution maintain genuine physical, economic and operational presence within its licensing jurisdiction. Regulators verify that the company retains dedicated office premises, resident executive directors, local compliance personnel and documented domestic board governance, preventing the establishment of letterbox corporate entities.

Money Laundering Reporting Officer (MLRO)

The senior compliance professional within an authorised institution responsible for administering anti-money-laundering systems, evaluating suspicious internal transaction reports and submitting formal suspicious activity disclosures to national financial intelligence units. The officer must maintain sufficient seniority, operational independence and direct reporting access to the company board.

Multilateral Trading Facility (MTF)

A multilateral trading venue operated by an authorised investment firm or market operator that brings together multiple third-party buying and selling interests in financial instruments under non-discretionary trading rules. Regulated as an alternative to formal stock exchanges, it ensures fair order execution, market integrity and continuous pre-trade transparency. More

National competent authority (NCA)

The designated domestic government body or central bank responsible for supervising, licensing and regulating financial institutions, payment firms and digital asset operators within a nation. The authority enforces financial stability, investigates regulatory breaches, imposes administrative penalties and collaborates with international supervisory bodies to maintain cross-border market integrity.

Organised Trading Facility (OTF)

A multilateral trading system, distinct from regulated markets and multilateral trading facilities, where third-party buying and selling interests in bonds, structured financial products or derivatives interact. Unlike other venue operators, the platform operator exercises commercial discretion when routing orders and facilitating transactions between institutional market participants. More

Outsourcing

A commercial arrangement where an authorised financial institution contracts a third-party provider to deliver operational processes, technological infrastructure or compliance functions. Regulators enforce strict rules on outsourcing critical functions, requiring institutions to retain ultimate operational accountability, robust management oversight, unhindered audit access and tested business continuity arrangements.

Own funds

The capital resources that an authorised financial institution must maintain continuously to absorb potential operational losses and sustain ongoing solvency. Calculated under statutory regulatory formulas reflecting payment turnover, overhead expenditures or outstanding liabilities, own funds guarantee that a regulated firm retains sufficient high-quality capital to support its operational scale. More

Passporting

The regulatory mechanism within the European Economic Area allowing an authorised financial institution to provide services or establish physical branches in any other member state without obtaining a separate local licence. The firm operates under the supervision of its home state authority, following formal notification between the relevant national supervisors. More

Payment account

An account held in the name of one or more payment service users used exclusively for executing daily payment transactions, such as credit transfers, direct debits and card settlements. Regulated under payment services legislation, payment accounts differ fundamentally from savings accounts as they cannot accrue interest. More

Payment agent

A natural person or corporate body contracted by an authorised payment institution or electronic money institution to act on its behalf in delivering specific payment services. The principal institution retains full regulatory liability for all actions, conduct standards and anti-money-laundering compliance executed by its appointed agents. More

Payment Institution (PI)

A licensed corporate entity authorised to provide payment services such as credit transfers, merchant acquiring, card issuance, money remittance and open-banking services. Unlike banks or electronic money institutions, payment institutions cannot accept repayable deposits from the public or issue electronic money, and must safeguard all customer payment funds. More

Pre-application meeting

A preliminary structured meeting between a prospective licence applicant and supervisory case officers held before formally submitting an authorisation dossier. The session allows the applicant to present its planned operational model, governance architecture and capitalisation, while regulators outline procedural expectations, documentation requirements and potential licensing obstacles. More

Professional indemnity insurance (PII)

An insurance policy covering potential financial liabilities resulting from professional negligence, system errors, operational omissions or fraud committed during regulated business. For account information and payment initiation service providers, holding an approved policy constitutes a mandatory licensing condition to ensure adequate compensation for customer losses. More

Qualifying holding

A direct or indirect holding of at least 10% of the capital or voting rights of an authorised firm, or any stake that allows significant influence over its management. Acquiring one, or increasing it past 20%, 30% or 50%, needs prior notice to and approval from the competent authority under EU financial law. More

Regulatory capital

The mandatory reserve of qualifying equity and subordinate debt that an authorised institution must maintain on its balance sheet to satisfy statutory prudential standards. Distinct from ordinary accounting equity, regulatory capital excludes intangible assets and must satisfy strict permanence and loss-absorption criteria to cushion against institutional insolvency. More

Regulatory sandbox

A controlled supervisory testing environment established by financial regulators allowing innovative fintech firms to trial new technologies, business models or financial products with live consumers. Sandboxes enable authorities to observe emerging technological risks while providing early-stage innovators with tailored supervisory guidance toward obtaining a full financial licence. More

Restricted licence

A bespoke financial authorisation granted with statutory conditions that limit transaction volumes, client types, product offerings or geographic operations. Regulators employ restricted licences to facilitate phased commercial rollouts or specialised business models, allowing new entrants to demonstrate operational competence under close supervision before securing an unrestricted licence. More

Reverse solicitation

A narrow statutory exception permitting an unauthorised or third-country financial institution to provide services to a client in another jurisdiction, provided the transaction was initiated at the exclusive, unsolicited initiative of that client. Authorities interpret this exemption strictly, prohibiting firms from marketing, advertising or conducting promotional outreach within the territory. More

Safeguarding

The statutory obligation requiring payment institutions and electronic money institutions to protect customer funds from corporate insolvency and third-party creditors. Regulators require institutions to hold segregated balances with authorised commercial banks or central banks, or to cover outstanding client liabilities through approved insurance policies or comparable bank guarantees. More

Segregation of client assets

The core regulatory requirement obliging financial institutions, brokers and custodians to keep client money and assets legally and physically distinct from the firm’s proprietary balance sheet. This segregation ensures client holdings remain protected from the claims of general corporate creditors in the event of institutional insolvency. More

SEPA access

The ability of an authorised financial institution to participate in Single Euro Payments Area clearing arrangements, enabling euro credit transfers, instant payments and direct debits across participating countries. Institutions connect directly via central bank payment mechanisms or indirectly through commercial sponsor banks to settle transactions efficiently. More

Share deal vs asset deal

In fintech mergers and acquisitions, a share deal involves purchasing equity in the licensed corporate entity, inheriting historical liabilities and requiring prior regulatory approval for the change of control. An asset deal transfers selected technology or contracts, requiring the acquiring firm to secure its own financial authorisation.

Shell company

A corporate vehicle that has no significant commercial operations, physical assets or active staff in its jurisdiction of incorporation. Because empty corporate shells present acute money-laundering and tax-evasion risks, financial regulators require genuine local economic substance, resident management and local operational governance before issuing a licence.

Significant CASP

A crypto-asset service provider that crosses statutory thresholds regarding active retail users, transaction volumes or market turnover. Because of the systemic risk such scale poses to financial stability, significant providers face enhanced supervisory scrutiny, mandatory governance assessments, heightened operational resilience standards and direct reporting obligations to European regulators. More

Small EMI

An electronic money institution registered under a statutory national exemption regime for firms operating beneath specified business turnover and outstanding liabilities thresholds. Small institutions benefit from reduced capital requirements and simplified governance, but they forfeit European passporting rights and are legally restricted to serving clients within their domestic jurisdiction. More

Specialised bank

A dedicated banking licence category designed for institutions focusing on retail deposit-taking and lending, while restricted from undertaking complex investment banking or financial trading activities. Offering lower initial capital hurdles than full universal banks, it provides established fintech companies with an accessible route to securing banking privileges. More

Stablecoin

A crypto-asset engineered to maintain a steady market price by referencing an official currency, a commodity, or a portfolio of assets. Under contemporary regulatory regimes, issuers must maintain segregated, liquid reserve assets, grant direct redemption rights, submit to independent reserve audits and satisfy rigorous capital adequacy requirements. More

Supervisory levy

An annual administrative assessment charged by a financial regulator to authorised institutions to fund public supervision and market oversight. Levies are calculated based on an institution’s regulatory licence category, annual turnover, balance sheet assets or transaction volumes, covering the costs of authorisations, inspections and market monitoring.

Tied agent

An individual or commercial company appointed by an authorised investment firm to promote its services, solicit prospective clients, receive and transmit client orders, or place financial instruments under the full and unconditional responsibility of that single firm. National regulators record tied agents in public registries to protect retail investors. More

Transitional period

The statutory timeframe established by newly enacted legislation allowing institutions to adapt their corporate structure, capital resources and operational compliance from an outgoing regime to new supervisory rules. This period ensures orderly market adaptation, enabling firms to prepare comprehensive licensing dossiers without suffering an abrupt suspension of lawful commercial operations. More

Travel Rule

The regulatory requirement obliging financial institutions and crypto-asset service providers to obtain, verify and transmit originator and beneficiary information alongside fund and virtual asset transfers. Designed to prevent anonymous illicit transactions, counterparty institutions must exchange customer identification data immediately and securely during the execution of client transfers. More

Ultimate beneficial owner (UBO)

Any natural person who ultimately owns or controls a corporate entity through direct or indirect equity shareholdings, voting rights or other decisive managerial influence. Regulatory frameworks mandate the identification and verification of beneficial owners to prevent financial crime, money laundering, terrorist financing and the evasion of international sanctions.

Virtual Asset Service Provider (VASP)

An entity categorisation established by international financial crime standards encompassing businesses that conduct virtual asset exchange, transfers, safekeeping, administration or token issuance services for clients. In jurisdictions outside harmonised European frameworks, firms must secure dedicated domestic registrations or licences to provide virtual asset services lawfully. More

Wolfsberg Group

An association of major global financial institutions that publishes industry best-practice principles and questionnaires for managing financial crime risks. Its widely referenced guidance documents covering customer due diligence, correspondent banking and anti-money laundering serve as standard international benchmarks for evaluating institutional counterparty compliance.